These days, there are many investment opportunities available. While some options such as the Public Provident Fund allow you to save for your future, others such a the life insurance plans allow you to secure your life and offer financial protection to your loved ones. You need to understand how each financial product works and how it can help you. This will help you to get the maximum value out of the investment and get the returns you desire. Take a look at this article to know the key differences between a life insurance plan and the Public Provident Fund so that you can decide which is a better option for you.
What is Life Insurance?
Life insurance is a contract between you and the insurance company that states that if you die within the policy period, your nominees would receive a pre-decided sum assured. This would only happen if you pay all your premiums on time and keep the policy active. You can choose the coverage amount, based on the requirements of your family. A life insurance plan can also have an investment component, where a part of the premium you pay gets invested in the financial markets and earns dividends. In most life plans, you get a maturity benefit when you outlive the policy period.
What is a Public Provident Fund?
The Public Provident Fund is a post-office saving scheme launched by the Government of India. It is a pure-saving scheme that allows you to invest small sums of money to build up a corpus for the future. The value of the fund will completely depend on the amount of contribution you make every year. The returns are fixed and the fund has a fixed tenure of 15 years as well.
Life Insurance v/s Public Provident Fund
Here is a comparative look at the two to help you determine which is better suited:
|Public Provident Fund
|The aim of life insurance is to cover the policyholder’s life. If the policyholder dies before the policy terminates, his or her beneficiaries receive a death benefit. This offers financial stability to the family after the primary breadwinner’s demise. It is also beneficial as it allows the family to clear debts and other financial liabilities that the deceased policyholder had.
|The aim of a Public Provident Fund is to merely build up a corpus for the future. Many people use this as a retirement fund while others save up to pay for an important life event such as their child’s marriage.
|Life insurance has numerous variants. You can buy a pure life cover in the form of term insurance. You can buy an endowment plan and get to combine the elements of insurance and investment. You can buy a child plan to solely protect the financial wellbeing of your kids. There are many options for you to choose from.
|There is no variation available in the Public Provident Fund. The PPF is a pure savings-scheme that doesn't have many variations. You make the contribution, build up the fund and then receive the amount at the end of the tenure.
|The life insurance plans are sold by the leading life insurance companies in India. The Life Insurance Corporation of India (LIC) is the largest and oldest public life insurance company in the country. There are various other private life insurance companies as well and all of them offer life insurance policies.
|The Public Provident Fund is available at the post offices across India. Some banks have also been empanelled by the government and they also offer the PPF for their customers.
|The contribution, also known as premium in life insurance, can be of any amount, depending on factors such as the coverage amount, the tenure of the plan, etc. There are some plans where you can pay a single premium for the entire policy and there are plans where you can pay your premium each month. There are no fixed rules for contributions made towards the life insurance plans.
|The contribution in a PPF is less flexible. You can only contribute amounts between INR 500 to INR 1.5 lakhs. The contribution needs to be made once a year.
|There is no fixed tenure in life insurance. savings scheme offer short policy tenures of five years, others like the whole life plans keep you covered for the entire duration of your life.
|The tenure is a Public Provident Fund is fixed. You can only invest in this savings-scheme for a period of 15 years.
|The return component in life insurance varies as per the plan you choose. If you have term insurance, there is no return component available at all. If you have an endowment plan, your returns will be as per the market conditions. If you have a ULIP, your return can be very high depending on the fund type you choose. Therefore in life insurance, the returns are never fixed.
|You get assured, fixed returns in PPF. The rate is declared at the beginning of the financial year and the dividends come in accordingly. The returns are fixed and do not change according to the conditions of the financial markets.
|You get tax benefits up to INR 1.5 lakhs a year for the premium you pay for the life insurance plan. This is available under Section 80C of the Indian Income Tax Act.
|In PPF too, you get tax benefits up to INR 1.5 lakhs per annum for the contributions made. This is available under Section 80C of the Indian Income Tax Act.
The key here is to identify what your exact requirements are. A life insurance plan primarily offers a life cover whereas a Public Provident Fund offers a saving for the future. Many people choose to invest both in life insurance as well as in the Public Provident Fund since they want to benefit from the advantages of both. You may also do so if your requirements are such. Else, you can either choose a life insurance plan, or a Public Provident Fund and have a suitable financial portfolio.